Tiffany Beats Expectations, but Its Future May Not Be So Bright

Iconic jewelry brand Tiffany & Co. (TIF) reported earnings on Tuesday, and while the New York-based company beat Wall Street's expectations, it said that the future remains uncertain.

Investors should take this warning into consideration before they think about buying shares. At best, Tiffany is a long-term play.

The company's stock price was up more than 3% in late Tuesday trading. 

For its fiscal third quarter, Tiffany reported a year-over-year earnings boost from $91 million, or 70 cents per share, to $95.1 million, or 76 cents per share. The analyst consensus had expected 67 cents per share.

Despite analysts predicting that revenue would shrink from $938.2 million to $923.8 million, it grew instead, to $949.3 million. Same-store sales fell 2%, but this again beat analysts' forecasts, which had predicted a 4.1% decline. Sales were aided by the Japan segment, which recorded a 20% boost in same-store sales.

"We are encouraged by some early signs of improvement in sales trends, but we clearly need more positive data over time before this can be considered an inflection point," said Tiffany's CEO, Frederic Cumenal. The company also mentioned that it is "premature to say there has been a meaningful turn" in the luxury goods business.

Economic woes and uncertainty worldwide have hurt luxury goods brands in the past year. A continuing crackdown on conspicuous consumption in China, as well as uncertainty about Hong Kong's upcoming elections, has dampened the once lucrative and growing Asian markets. The Brexit vote has also raised doubts about European markets.

In the U.S., the volatile political landscape has hurt consumer confidence. Moreover, Tiffany's business has suffered from the fact that its New York flagship store (and a tourist attraction in its own right) is next to Trump Tower, and intense security measures to protect President-elect Donald Trump and throngs of protestors could cause store traffic to drop by as much as 50%, according to a report by research analysts at Cowen & Co. The report said that each week of protesting outside the hotel could take 3 or 5 cents per share off Tiffany's bottom line.

Earlier this month, Cowen raised its rating of Tiffany from neutral to outperform. 

Like its jewelry, Tiffany's stock isn't cheap. It's currently trading around 20 times its projected earnings over the next 12 months. Coach and Burberry, which are similar types of brands, are more affordable.

Unless you're wiling to take the risk of an uncertain luxury goods market and to hold for a long time, don't look to Tiffany for shiny profits anytime soon.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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